Questions: The Y-axis is labeled Real Aggregate Expenditure (AE), and the X-axis is labeled Real GDP (Y). The 45° line starts at the origin and rises to the right at a 45° angle. The 45° line is labeled Y=AE. One aggregate expenditure line, labeled AE1, starts at a point on the Y-axis and rises to the right with a slope that is less steep than the 45° line. AE1 has three points on it, labeled from left to right A, B, and C. Point B is where AE1 intersects the 45° line. Point A is closer to the Y-axis than Point B, while Point C is farther from the Y-axis than Point B. According to the graph above, which point indicates that aggregate expenditure is greater than GDP? B Both A and C C A

The Y-axis is labeled Real Aggregate Expenditure (AE), and the X-axis is labeled Real GDP (Y). The 45° line starts at the origin and rises to the right at a 45° angle. The 45° line is labeled Y=AE. One aggregate expenditure line, labeled AE1, starts at a point on the Y-axis and rises to the right with a slope that is less steep than the 45° line. AE1 has three points on it, labeled from left to right A, B, and C. Point B is where AE1 intersects the 45° line. Point A is closer to the Y-axis than Point B, while Point C is farther from the Y-axis than Point B.

According to the graph above, which point indicates that aggregate expenditure is greater than GDP?
B
Both A and C
C
A

Transcript text: (i) See text description. The Y -axis is labeled Real Aggregate Expenditure (AE), and the X -axis is labeled Real GDP (Y). The $45^{\circ}$ line starts at the origin and rises to the right at a $45^{\circ}$ angle. The $45^{\circ}$ line is labeled $Y=A E$. One aggregate expenditure line, labeled $A E_{1}$, starts at a point on the Y -axis and rises to the right with a slope that is less steep than the $45^{\circ}$ line. $A E_{1}$ has three points on it, labeled from left to right $A, B$, and $C$. Point $B$ is where $A E_{1}$ intersects the $45^{\circ}$ line. Point $A$ is closer to the $Y$-axis than Point $B$, while Point $C$ is farther from the $Y$-axis than Point $B$. According to the graph above, which point indicates that aggregate expenditure is greater than GDP? B Both A and C C A

Solution

Solution Steps

Step 1: Understand the Graph

The graph shows the relationship between Real Aggregate Expenditure (AE) and Real GDP (Y). The 45° line (Y=AE) represents points where AE equals Y. The line AE₁ represents a different relationship where AE is not necessarily equal to Y.

Step 2: Identify Points on AE₁

Points A, B, and C are on the AE₁ line. Point B is where AE₁ intersects the 45° line, meaning AE = Y at point B. Point A is to the left of B, and Point C is to the right of B.

Step 3: Determine AE and Y Relationship